Saudi Arabia has accused archrival Iran of meddling in Iraq, saying the presence of Iranian military units there is "unacceptable."

"Sedition and division in Iraq are the results of sectarian policies that developed out of Iran's policies in Iraq," said Saudi Foreign Minister Adel al-Jubeir in a joint press briefing with his British counterpart, Philip Hammond, in Jeddah.

"If Iran wants stability in Iraq, it has to stop intervening and withdraw," he said, after accusing Tehran of sending "Shi'ite militias" to the war-torn country.

His comments come as thousands of Iran-backed Shi'ite militiamen surround the Sunni city of Fallujah ahead of an operation to retake it from the Islamic State extremist group.

Iran has said its military advisers in Iraq are there at Baghdad's request to help Iraqi forces fight militants.

It has repeatedly rejected Saudi criticisms of its role in Iraq, instead accusing its regional rival of supporting extremism.